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After data overnight showed U.S. private sector employment surprisingly shrank in September, the potential has increased for the official payrolls report to reflect weakness and accelerate what has become the cheap money trade: sell dollars, buy bonds, equities and gold.

This trade has been driven by expectations the Federal Reserve at its policy meeting next month will shift toward quantitative easing (QE), effectively flooding the financial system with cheaply borrowed cash.

The greater chance of a soft U.S. payrolls number made the dollar's disadvantages all the more stark, especially after data showed Australian employment in September was more than double forecasts, driving the Australian dollar to the highest since July 2008 against the dollar.

In equities, Japan's Nikkei share average .N225 gained 0.1 percent, adding to the week's 3.3 percent rise. The index is outperforming the U.S. S&P 500 index .SPX and the FTSEurofirst 300 index .FTEU3, which are both up 1.2 percent so far this week.

The MSCI index of Asia Pacific stocks outside Japan was up 0.25 percent .MIAPJ0000PUS to the highest since June 2008.

The 11.6 percent rise in the index last month exceeded the all-country world index by two percentage points and has been driven by the consumer discretionary, energy, industrial and materials sectors.

Investors remain focused on the U.S. dollar, which fell 8.5 percent against a basket of major currencies in the last quarter.

Goldman Sachs analysts revised their forecasts for the dollar downward, expecting Asian currencies to shoulder more of the burden of currency strength in coming months.

"The combination of weaker growth, more QE, FX policy pressure on Asia for more currency appreciation and widening external imbalances all point in the same direction: broad USD weakness. And this is likely to remain the dominant theme," the analysts said in a note.

The euro has benefited from the dollar's weakness and hit an eight-month high of $1.3949 overnight. It was down 0.1 percent on the day at $1.3910.

The European Central Bank will meet to review policy later though no changes are expected. Dealers will listen for any comment on the euro's rapid 7.5 percent gain last month.

The dollar was trading at 82.90 yen, not far from the 15-year low of 82.75 yen plumbed on Wednesday.

Precious metals have been other beneficiaries of dollar weakness. Gold was largely unchanged on the day after touching a record high of $1,349.80 an ounce on Wednesday. Since August, gold has risen 14 percent.

(Editing by Miral Fahmy)